Public Goods 2

Public Goods 2 - Variable Public Good Quantities E.g. how...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
Variable Public Good Quantities E.g. how many broadcast TV programs, or how much land to include into a national park.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Variable Public Good Quantities E.g. how many broadcast TV programs, or how much land to include into a national park. c(G) is the production cost of G units of public good. Two individuals, A and B. • Private consumptions are x A , x B .
Background image of page 2
Variable Public Good Quantities Budget allocations must satisfy x x c G w w A B A B + + = + ( ) .
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Variable Public Good Quantities Budget allocations must satisfy MRS A B are A & B’s marg. rates of substitution between the private and public goods. Pareto efficiency condition for public good supply is x x c G w w A B A B + + = + ( ) . MRS MRS MC A B + = ( ). G
Background image of page 4
Variable Public Good Quantities Pareto efficiency condition for public good supply is Why? MRS MRS MC A B + = ( ). G
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Variable Public Good Quantities Pareto efficiency condition for public good supply is Why? The public good is nonrival in consumption, so 1 extra unit of public good is fully consumed by both A and B. MRS MRS MC A B + = ( ). G
Background image of page 6
Variable Public Good Quantities Suppose • MRS A is A’s utility-preserving compensation in private good units for a one-unit reduction in public good. Similarly for B. MRS MRS MC A B + < ( ). G
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Variable Public Good Quantities is the total payment to A & B of private good that preserves both utilities if G is lowered by 1 unit. MRS MRS A B +
Background image of page 8
Variable Public Good Quantities is the total payment to A & B of private good that preserves both utilities if G is lowered by 1 unit. Since , making 1 less public good unit releases more private good than the compensation payment requires Pareto-improvement from reduced G. MRS MRS MC A B + < ( ) G MRS MRS A B +
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Variable Public Good Quantities Now suppose MRS MRS MC A B + ( ). G
Background image of page 10
Variable Public Good Quantities Now suppose is the total payment by A & B of private good that preserves both utilities if G is raised by 1 unit. MRS MRS MC A B + ( ). G MRS MRS A B +
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Now suppose is the total payment by A & B of private good that preserves both utilities if G is raised by 1 unit. This payment provides more than 1 more
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/26/2011 for the course ECON 100B taught by Professor Kilenthong during the Fall '08 term at UCSB.

Page1 / 54

Public Goods 2 - Variable Public Good Quantities E.g. how...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online